Those blockbuster deals would attract thousands of buyers and help spread the word about Groupon. But are the deals cooling off?
Groupon held its initial public stock offering on Friday, and since then the stock price has steadily fallen from a high of $31 to $23.50, as of this morning. Analysts have questioned whether Groupon can live up to its multi-billion dollar valuation with reports that local merchants — especially restaurants — are souring on the big daily deal model, which is often a money-loser thanks to Groupon taking up to half of the proceeds from already-discounted sales.
Consumers, too, may be getting turned off, especially in Groupon’s better-established markets. Data suggests that a “significant portion” of people who once subscribed to daily deal emails are now unsubscribing. Indeed, one firm that tracks data from Groupon has reported that its core local deal business is starting to decline.
Some anecdotal evidence points to an erosion in the quality of deals offered as the more popular local businesses become less likely to do steeply-discounted deals and as an explosion in the number of daily deal companies spreads the better deals across a wider swath of websites.
Recent offerings from the Groupon Northern Virginia Twitter feed include 63 percent off weight-loss hot pants, 53 percent off a haircut at a Dulles, Va. salon, and 58 percent off an eco-friendly waterless car wash.
Do you think the quality of Groupon deals has gone down over the past year or so?
But Pete’s New Haven Apizza (3017 Clarendon Blvd) in Clarendon is trying something a bit old-fashioned. In the age of Groupon and Living Social, Pete’s is deliberately skipping the daily deal websites and offering its own 50-percent-off promotion.
Starting today, Pete’s in Clarendon is offering dine-in customers half-off pizza on Mondays. All day. No coupon required.
Co-owner Joel Mehr says the restaurant has been packed on weekends and on particularly nice days, but now that winter is approaching it has to drive more regular weekday business to justify its expensive rent. The major daily deal websites, however, don’t allow him to accept coupons only on certain days, and have a less-than-stellar track record of attracting regular customers.
“The biggest thing about Groupon is that we have no control of when [customers] come,” he said. “We are seeing people come in one time only, on a Friday night, they’re not coming back, and we’re giving them a discount when we could be filling that seat with a full-paying customer… If we are giving discounts when we don’t need to be giving discounts, that doesn’t benefit us.”
“Groupon only works if it gets people to come out, check us out, like us and come back after they used the deal,” Mehr continued. “It doesn’t work if it’s just people out there that are looking to get the Groupon deals. There are so many Groupon deals or Living Social deals that it’s sort of a flavor of the week. If you’re one of those people, you only have to go and eat where you get the deal.”
Despite selling more than 5,600 Groupons for its three restaurants earlier this year, Pete’s still doesn’t have sufficient name recognition at its six-month-old Clarendon location, Mehr said. He hopes that offering half off on Mondays can help build recognition with neighbors while creating more regular customers.
“We feel like the word is not out there,” Mehr said. “We’re just trying to create a buzz.”
Plus, by offering its own deal, Pete’s won’t have to cough up the reported 40-50 percent of coupon sales that goes straight to the deal company.
Mehr admitted that while he has doubts about Groupon being able to drive weekday business, it did drive overall business. Sales dropped significantly, he said, after the Groupon deal expired in September. But Mehr’s concerns echo those of other small business owners in a weekend New York Times article that called daily deals a “fad” that attracts a disproportionate number of bargain hunters.
If half-off pizza Mondays prove successful, Mehr says he may expand the promotion to the two Pete’s locations in D.C. And, he said, other promotions — like a Tuesday deal on lasagna — might follow.
Now that Groupon appears poised to conduct a $1 billion initial public offering that will value the company at $20 billion, some have been questioning whether Groupon and other ‘daily deals’ web sites (like Living Social) are actually worthwhile for the businesses that offer the deals.
While consumers only see the great money-saving bargains — for instance, $40 worth of food at a local restaurant for $20 — merchants have to accept that running a Groupon-type deal is probably going to be a money-losing proposition in the short term. Since Groupon typically gives merchants 50 percent of its deal revenue, that means that Joe’s Restaurant is only receiving $10 for giving away $40 worth of food. Low-margin businesses like restaurants will often lose money on that — and the losses will add up, since Groupon can sell hundreds or even thousands of coupons at a time.
The silver lining for businesses that use Groupon — and the entire premise of ‘daily deals’ in general — is customer acquisition. The idea is that by getting a whole bunch of people to try your food (if you’re a restaurant) or services (if you’re, say, a yoga instructor) you can get a certain percentage of those deal purchasers to come back later and pay full price.
Very generally, businesses need about 10 percent to return to turn a money-losing deal into a money-making deal. But does that actually happen? The question is especially pertinent in Arlington, where lots of businesses have been trying out daily deals and where customers can simply jump from deal to deal, if they really wanted to.
If you’ve ever bought a daily deal (for a business you were not already patronizing) have you at some point returned to that business and paid full price?
Jim Morrison in Arlington? — The late Doors frontman Jim Morrison apparently was an Arlingtonian. The son of a Navy admiral, Morrison lived at as many as three different Arlington addresses. The current resident of one of his reported former addresses says Morrison’s ghost has haunted the house on three different occasions. [Falls Church News-Press]
Pete’s Apizza Groupon Selling Fast — A 50% off Groupon for Pete’s New Haven Style Apizza (3017 Clarendon Blvd) has nearly sold out. As of this writing, 5,800 people have purchased the deal — 4,800 specifically for the restaurant’s recently-opened Clarendon location. Expect the Clarendon restaurant to get considerably more crowded over the next few weeks as a result. [Groupon]
Mobile Visitors Center Honored — Arlington’s first-of-its-kind electric-powered Mobile Visitors Center has been honored as the Visitor Center of the Year by the Virginia Association of Convention & Visitors Bureaus. The Mobile Visitors Center “serves travelers and residents at six Metro locations five days a week, and at major annual events.” [Arlington County]
Flickr pool photo by Philliefan99
In the hyperactive era of RSS feeds, smartphones, and yes, blogs, it’s kind of heartwarming to see that there’s still a market for the good ol’ fashioned Sunday newspaper, if only thanks to Groupon.
So far, more than 2,500 people and counting have paid $10 for a 20-week subscription to the Sunday Washington Post on Groupon.
That’s pretty impressive, given that the Post’s Sunday circulation fell by 8.2 percent in the most recent six-month reporting period.
Groupon, by the way, does a creative job of selling the paper when you can get the same articles on the web for free.
Although more and more people are turning online for info, spending a quiet afternoon with a hard copy of the Sunday paper trumps staring at a computer screen. Make a foray into the informed with a newspaper, which unlike a computer monitor, can later be used to line your table for a crab feast.
(h/t to Clarendon Culture)